Fostering Discipline Is Paramount

PPLI Joins ‘Two Sides of the Same Coin’

To be thorough and open to new possibilities at the same time requires discipline: embracing ‘two sides of the same coin.’  In the PPLI structuring of wealthy international families’ assets, Advanced Financial Solutions, Inc. strives to achieve this aim. For each new case we exam similar PPLI cases that we have handled in the past. For the specific knowledge that we will need for new cases which we might lack, we have an excellent resource of professional advisors worldwide that can be easily contacted to supply this missing knowledge for a successful PPLI structure to be created.

For our analogous examples we have one from the area U.S. tax planning and how it affects U.S. beneficiaries of Foreign Grantor Trusts, and strangely enough, one from high-fashion. This example shows us what happens when the ‘two sides of the same coin’ turn out to be the same thing, and–to change this analogy–the coin loses its luster by turning out to be a copy. In a humorous vein, you can view this also as social media bringing transparency to haute couture.

Before we share the above material, we are pleased to give you this description of PPLI from International Life Insurance edited by David D Whelehan, JD in the chapter, “International Life Insurance An Overview.

“This product is for the wealthy, “accredited” investor. They are usually very large single premium structures. It is classified more as an institutional product, as the charges and fees are quite low in comparison to retail products described above. Another advantage is investment flexibility as they generally can be invested in things not permitted in a general account retail product, like hedge funds and private equity.

Premiums and benefits can also be paid in “kind,” as opposed to in cash. In addition, the policyowner can select his, or her, own Investment Manager for just the single policy to invest according to the policyowner’s general directions. The Custodian of the underlying assets in the fund can also be selected by the policyowner. Private placement products are tailored to meet specific objectives of the client, but are carefully designed to be compliant with local tax laws, so as to enjoy the tax treatment desired.”

In the STEP Journal Melvin A Warshaw and Lawrence M Lipoff discuss a key change to the US Tax Cuts and Jobs Act of 2017, and assess what it means for advisors to trustees of foreign grantor trusts. They conclude that due to recent changes in U.S. tax law that a properly structured PPLI provides an excellent solution for U.S. beneficiaries of foreign grantor trusts.

A Simpler and Safer Strategy

“In a previous two-part article,[1] we presented US tax advisors with our highly technical analysis of a key change in the foreign tax provisions of the US Tax Cuts and Jobs Act of 2017 (the Act) impacting how trustees of foreign grantor trusts (FGTs) traditionally hold US-situs portfolio assets that potentially benefit both US and non-US heirs of a non-citizen, non-resident (NCNR) of the US.”

Trustees must analyze whether their existing single foreign corporation (FC) strategy is still viable and, if not, what steps they should take to address this US tax law change. Some advisors suggest a second FC and others a two-tier or three-tier FC structure. Leaving aside that planning variations relying on different entity structures may be one option, we believe that offshore[2] private placement life insurance (PPLI) may offer a far simpler and safer strategy.

Under pre-2018 US tax law, trustees of FGTs generally relied on a single non-US holding company to shield the NCNR grantor of an FGT from US estate tax on US-situs portfolio assets. Following the death of the NCNR, the trustees would effectively eliminate this FC by filing a post-death, retroactive (so-called ‘check-the-box’) election within 30 days of such death. Gain recognition would be avoided on the historical pre-death unrealised appreciation of the US portfolio assets, prior to elimination, i.e. liquidation, of the FC, as well as pre-2018 controlled foreign corporation (Subpart F CFC) passive income tax and related tax compliance. Plus, the US heirs would achieve a basis step-up in the underlying US portfolio assets equal to their fair market value (FMV) on the date of the election.

The Act repealed the 30-day retroactive election for tax years after 2017. Under current US tax law, a post-death ‘check-the-box’ election for the trust’s FC could cause US beneficiaries of the trust to inherit the historical pre-death unrealised appreciation in the US-portfolio assets and incur cumbersome US tax compliance. Further, if an FC is a CFC for even one day during the tax year, there could be potential phantom income for the US beneficiaries of the trust now encompassing the new US ‘global intangible low taxed income’ (GILTI) regime.

Continuing a single FC

The single FC structure continues to be effective in preventing imposition of US estate tax on the US portfolio assets held by the FC. If most of the NCNR’s trust beneficiaries are US persons (citizens or residents),[3] the trustees and US advisors must anticipate that there will now be US income tax and US tax reporting on historical appreciation of the assets held in the single FC that would eventually be recognised by the US beneficiaries after the NCNR’s death. If most of the trust beneficiaries are not US persons, it may be possible that the single FC will lack sufficient beneficial ownership by US persons to qualify as a CFC.

Side-by-side FCs

Another approach suitable for families with both US and non-US persons as beneficiaries is to have the trustees of the FGT create a second FC, which would own only non-US-situs assets. The original FC would own only US securities. The non-US portfolio assets owned by the second FC would be earmarked to benefit solely non-US persons as trust beneficiaries after the death of the NCNR. The US portfolio assets owned by the existing FC would be earmarked for the US beneficiaries. There would be no US estate tax on the non-US assets owned by the second FC. A retroactive check-the-box election could be filed for this second FC effective on the day before the NCNR’s death.

Some US advisors advocate relying exclusively on entity structuring to convert a single FC into a multi-tier FC structure involving at least three FCs. Prior to the NCNR’s death, the trustees of the NCNR’s FGT would create two FCs. These two FCs would then together equally own the shares of a third lower-tier FC. The US portfolio assets would be owned by the lower-tier FC. Following the death of the NCNR, the lower- and upper-tier FCs would be deemed liquidated for US tax purposes (by filing check-the-box elections) in a carefully scripted sequence as follows.

  1. First, the upper-tier FCs would each file a check-the-box election for the lower-tier FC, effective one day prior to the death of the NCNR. This results in a taxable liquidation of the lower-tier FC without current US income tax on the historical pre-liquidation unrealised appreciation inside the FC. However, the upper-tier FCs’ basis in the underlying US securities held by the former lower-tier FC will equal the FMV of such assets on the date of the deemed liquidation of the lower-tier FC.
  2. Second, two days after the NCNR’s death, both upper-tier FCs will make simultaneous check-the-box elections. The inside basis of the US portfolio assets previously held by the lower-tier FC prior to its deemed taxable liquidation would be stepped up or down to the FMV of such assets on the day after the death of the NCNR.

Advocates of this highly complicated, carefully scripted entity structure and serial liquidation strategy for US portfolio assets indicate that, if successful, the results should be comparable to the results under prior law. However, this is not without some new tax and reporting risks, as noted above, nor does it address the question of what the independent significant non-tax business purpose for ‘each’ of the three FCs would be.

Offshore PPLI

Assuming the NCNR is insurable, advisors should seriously consider the possibility of their NCNR clients, with significant US portfolio assets, and US persons as potential beneficiaries investing in certain types of offshore PPLI policies that in turn invest in US assets.

Purchasing an offshore US tax-compliant PPLI policy will result in no US income tax recognition in the annual accretion in the cash value growth of the policy. Holding the policy until death is equivalent to receiving a US basis step-up at death on the death benefit that is payable in cash. In planning for the US beneficiaries of the NCNR, if the revocable FGT were named as owner and beneficiary of the PPLI, this trust could be structured to pour over at the death of the NCNR to a US dynasty trust organised in a low-tax jurisdiction with favourable state trust laws. This structure will ensure that the death benefit pours over to a US domestic trust that will not become subject to foreign non-grantor trust (FNGT) tax rules.

A non-admitted offshore carrier obviates CFC status for the policy and policy owner by making a certain special US tax code (s.953(d)) election to be treated as a US domestic carrier. Aside from avoiding CFC status for the policy and its owner, making this special election causes the carrier to absorb US corporate income tax and administrative costs to comply with US informational tax reporting. The hidden benefit of an offshore carrier making this special US tax election is that it enables such a carrier to claim a special deduction of reasonable reserves required to satisfy future death benefits. The offshore carrier simply absorbs the cost of US income tax compliance including its responsibility for CFC and passive foreign investment company (PFIC) reporting. There is no look-through of an insurance policy to its owner for the purposes of applying the PFIC rules. So long as the NCNR avoids any control over the selection of specific investments made by the policy owner for the policy, investor control should not be a concern.

Our conclusion is that current US tax law provides clear support for the proposition that the PFIC and CFC rules should not apply to a US tax-compliant policy issued by a foreign carrier that files a special (s.953(d)) election with the Internal Revenue Service. This will result in the tax-free inside growth in the PPLI policy that, if held until the death of the NCNR, will result in no income tax on the death benefit. We believe that purchase of an offshore PPLI policy by the NCNR through an FGT that pours over to a US dynasty trust is an efficient, safe and simple solution that allows an NCNR to invest in US portfolio assets, and leverages that investment and all subsequent growth tax-free into policy death benefit available to US beneficiaries after such death.”

From the Wall Street Journal, we share “Fashion Industry Gossip Was Once Whispered. Now It’s on Instagram” by Ray A. Smith.

“Shortly after designer Olivier Rousteing showed his fashion collection for Balmain in Paris last September, French designer Thierry Mugler posted on Instagram.

Mr. Mugler, famous in the 1980s and early ’90s for power suits and the George Michael “Too Funky” video, posted a series of side-by-side images comparing his past ensembles to Mr. Rousteing’s new looks. Next to a Balmain black, one-shouldered jacket-dress with white lapels, Mr. Mugler posted his own similar design from 1998 with the comment: “Really?”

Along with Balmain’s dress featuring a graphic, webbed print, Mr. Mugler, who now goes by the first name Manfred, attached his own webbed design from 1990. “No comment!”

The episode surprised Mr. Rousteing. “Oh my God, I’m so sorry for him, seriously,” said 33-year-old Mr. Rousteing about 69-year-old Mr. Mugler in an interview. He denied copying the designer.

In the past, copycat allegations rarely reached beyond fashion industry gossip—or sometimes courtrooms—and rarely made it to the wider public. Now with Instagram, fashion’s favorite app, accusations spread much faster and to a wider audience. Eagle-eyed accusers can post comparison pictures and add arrows and circles to zero in on the alleged offense immediately after a fashion show, now that runway images are beamed out in real time.

High-end fashion labels are increasingly being called out on social media for copying other designers or designs, leading to back-and-forth exchanges, lawsuits and expensive apologies.

Instagram accounts, including Diet Prada, have formed to focus on designers and retailers whose creations some feel look too much like other designers’ past work. Since its 2014 launch, Diet Prada, which isn’t affiliated with Prada, has amassed more than 960,000 followers. The Fashion Law blog and CashinCopy Instagram feed also name and shame copying.”

If you are looking for a bespoke solution to your asset structuring needs, we welcome you to contact us. You will also benefit from our conservative and fully compliant methodology of using PPLI as the centerpiece of the structure. You will be pleasantly surprised to experience ‘two sides of the same coin.’

 

[1] M. A. Warshaw and L. M. Lipoff, ‘How to Navigate the Choppy Seas for Foreigners With U.S.-Based Heirs: Part I’, Trusts & Estates (June 2018), and ‘Non-Citizen, Non-Resident Options for Life Insurance’, Trusts & Estates (August 2018)

[2] All uses of ‘offshore’ and ‘foreign’ are given from the perspective of the US.

[3] All references to ‘US persons’ in this article refer to citizens and residents only.

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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PPLI AND JURISDICTIONAL ISSUES

Whose Jurisdiction Is This? Private Placement Life Insurance Defines and Simplifies

A proper understanding of jurisdictional issues is key to a successful Private Placement Life Insurance (PPLI) structure. One cannot simply take the assets of wealthy international families and move them offshore and expect a good result. The tax residence of the family is paramount, as well as the tax residence of the beneficiaries. A PPLI structure that is successful in one country, might not work in another. These factors must be thoroughly researched for the wealthy international family to have a successful PPLI structure. Since these PPLI structures tend to be long-term the necessity for this thorough research is even more compelling.

What are the areas that must be looked at to produce a successful outcome? The jurisdictional issues involved in all these areas must be addressed: tax treaties; tax laws; insurance laws; forced heirship issues, trust domicile; location of the assets; and tax reporting issues.

For our examples which illustrate jurisdictional issues, we give you one news story and excerpts from an excellent scholarly article: “GILTI: “Made in America” for European Tax Unilateral Measures, Excess Profits & the International Tax Competition Game” by  G. Charles Beller, UVA Law School, Class of 2018, Virginia Tax Review (forthcoming 2019).

As you will read our news story demonstrates how an unwanted intrusion by one jurisdiction into another can produce a very bad result. In the area of international taxation, individual countries are now competing with each other for international tax dollars. Governments are looking for a system that avoids unwanted intrusions at any level and respects the sovereignty rights of each country.

A key question posited by this article is: “How does Global Intangible Low-tax Income (GILTI), the U.S. global minimum tax on excess profits introduced with the “Tax Cuts and Jobs Act’s” (TCJA) fit into the larger debate about international tax avoidance, “harmful tax competition,” and taxation in the “digital economy”? As you will read, the article reaches a compelling new paradigm, partial developed from game theory, that could be a model for future international tax transactions.

Here are some key points from the article:

“Rather than perpetuate trans-Atlantic hostilities as Europe and the OECD consider the “digital economy,” the U.S. tax and business communities should explain how GILTI promotes beneficial competition on productive factors, discourages base erosion and profit shifting by U.S. multinationals (MNEs), and provides cover for European and other developed countries to modernize international tax rules consistent with longstanding principles of tax territoriality.

Political developments in the European Union and OECD suggest that EU member states need not feel guilty about leveraging a GILTI-esque minimum tax tool to combat the challenging issues facing international taxation in the digital age. Indeed, Germany has suggested a GILTI like minimum tax tool as part of a multilateral OECD proposal to confront challenges in taxing the “digital economy” – “a kind of BEPS 2.0” that utilizes U.S. unilateral action to facilitate multilateral cooperation.

At the heart of the controversy over GILTI, “Digital Taxation,” and the larger BEPS project is a debate about the propriety and benefits of tax competition. While tax competition is a controversial concept among economists and tax lawyers, recent scholarship provides a typology to talk productively about tax competition.

This paper draws on the theory of tax competition and language of international tax neutrality to argue that international tax policy must be viewed through the lens of “national welfare” when considering strategic incentives and thus positive predictions about nation state behavior in the international tax competition game.

Viewing tax competition and GILTI’s global minimum tax through the prism of game theory yields important insights into the potential for unilateral U.S. action to alleviate global collective action problems. An important question in evaluating GILTI is whether it enables potential cooperative behavior among developed economies through signaling and minimum standards by a sovereign with “pricing” power to set global rate and base terms for MNEs.

In short, is GILTI a harmful unilateral measures that undermines cooperative efforts in the OECD and EU? Or is GILTI like FACTA — a veiled if unsolicited gift for developed EU economies? This paper answers these questions and highlights the potential of a global minimum tax on excess profits to further debate about international taxation in a digitized economy while retaining foundational principles of tax territoriality.

Sovereignty and multilateralism have become buzzwords defining battle lines in a global debate about political ideology and international relations. International tax policy is a technical field that must skirt ideological battles and avoid aligning with “pure” multilateralism or “radical” unilateralism. While BEPS took an ideological position in arguing that cooperation stands in conflict with unilateralism, this paper shows how unilateral measures can foster beneficial cooperation in certain areas of the international tax policy.

As the FACTA/BEPS histories and GILTI parallels suggest, cooperative action is facilitated under certain scenarios through unilateral action with cooperative potential. Global minimum tax rates can operate as a sovereign cartel tool without clear efficiencies for productive factor competition or tax diversity. GILTI takes a different approach. It does not attempt to impose a global minimum tax rate by way of multilateral horse-trading. Instead, GILTI implements a resident based global minimum tax on excess profits that enables productive factor competition. Moreover, GILTI respects traditional principles of tax sovereignty and territoriality. GILTI’s resident based global minimum tax allows competing sovereigns to set their own rate and base terms. GILTI merely limits the benefit that foreign source rates confer on resident foreign profits.

As a result, GILTI’s resident global minimum tax tool shifts international tax competition away from a cat and mouse game of tracking down and labelling “tax havens” or “harmful” tax competition. Instead, the hunt for “harmful” tax competition is replaced with a productive experiment among competing sovereigns for a diverse array of resident benefits that allow domestic firms to exploit excess profits at home and abroad. Under GILTI (and similar tax tools), resident MNEs share the surplus of excess foreign profits with the resident sovereigns that make those profits possible. By enabling resident sovereigns to share in excess profits while at the same time limiting the tax benefit of foreign low tax rates, GILTI furthers productive factor competition.

As EU member states seeks to develop international tax policy for the “digital age,” productive factor competition should be a primary goal. Moreover, Europe must avoid a “two-hemisphere” mindset that targets digital tax revenues earned in the EU while dismissing identical proposals from developing countries targeting European revenues around the globe. GILTI bolsters productive factor competition while retaining the foundational principles of tax territoriality and sovereignty that protect resident firms when operating in foreign markets. That’s why GILTI is a tax tool “Made in America” for European tax.”

Our news story demonstrates a more confrontational jurisdictional dispute with a sad ending:  “American Missionary Killed by Isolated Tribe Wrote of Confrontation With the Group,” by Corinne Abrams and Rajesh Roy of the Wall Street Journal.

“As American missionary John Allen Chau sat aboard a boat near a remote Indian Ocean island known for its violent and isolated inhabitants, he wrote a message to his mother and father he made clear might be his last.

“You guys might think I’m crazy in all this but I think it’s worth it to declare Jesus to these people,” he wrote Friday. “Please do not be angry at them or at God if I get killed—rather please live your lives in obedience to whatever He has called you to and I’ll see you again.”

Within a day, Mr. Chau was missing. Five fishermen who took him to North Sentinel Island said they saw the body of someone resembling him being buried under the sand by members of the tribe that allegedly killed him.

Mr. Chau, 26, was visiting the island in India’s Andaman and Nicobar archipelago to try to spread the word of God, according to diary entries released by police.

The tribe has a long history of violent resistance to outsiders and is protected by laws that bar visitors from docking boats within 5 nautical miles (5.75 miles) of the shore.

Mr. Chau’s Instagram page shows a young man passionate about travel and new experiences. In July, he posted photos taken from a canoe and from a diving expedition with the hashtag #Andamans. Many of his posts are hashtagged #Solideogloria, the Latin phrase for Glory to God Alone.

In the journal, Mr. Chau wrote that he was on a mission to establish a kingdom of Jesus, Dependra Pathak, director general of police in the Andaman and Nicobar Islands said. Instead, he died during a “misplaced adventure in the highly restricted area,” Mr. Pathak wrote in a statement.

The islanders, part of the Sentinelese tribe whose origins date back tens of thousands of years, have a long history of hostile reactions to outsiders.

“They are very aggressive and violent. Anyone trying to access the area gets showered with arrows,” Mr. Pathak said.”

Luckily, at Advanced Financial Solutions, Inc. our job is not to decide what is right and proper for one jurisdiction in its relationships with other jurisdictions. Our job is to arrange the jurisdictional elements of PPLI structuring to achieve the best possible result for our clients. From our years of experience, this best possible result is a combination of outstanding tax savings, privacy enhancements, and asset protection benefits. We would like to help you achieve these benefits too. Please contact us with your worldwide asset structuring needs.

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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Resolving the Contradiction of Changeless Change

PPLI Can Do It

Resolving the Contradiction of Changeless Change

Can you use a well-established product as a process for the structuring of the worldwide assets of wealthy international families? Yes, is the resounding response from Private Placement Life Insurance (PPLI).

PPLI is both a standard product and a process, and hence its versatility, and at the same time, its stability. PPLI gives a structural framework to the diverse holdings of wealthy international families. Because PPLI is a product and common in the world’s tax and legal frameworks, there is a large body of laws and regulations that give advisors–a road map to follow.

This allows PPLI to give the assets of wealthy international families full privacy and tax savings, and at the same time, compliance with the world’s tax authorities.

To explore the concept of change, our article gives you an example from the world of self-driving automobiles.   We also share with you a legal challenge to the OECD’s CRS program.

Changeless Change is also a good description of China. This ancient civilization has transformed itself into a 21st century nation in only a few short years. Shanghai, China, is the venue of the video, “Our Journey Together” Part III, of my presentation at the 5th annual FOA Forum that we offer you below.

PPLI is also known as Private Placement Variable Universal Life Insurance (PPVUL). Its name speaks to the internal workings of the product. It is both life insurance and a home for investments. This is a definition from Cornell University Law School’s Wex Legal Dictionary:

“A form of whole life insurance that combines aspects of universal life insurance and variable life insurance and provides for a death benefit and accrues cash value on a tax-deferred basis. Variable universal life insurance (“VUL”) policies allow for flexibility in premiums, death benefits, and investment options.”

So how does a product become a process, a structuring tool? PPLI is a type of PPVUL, but with very unique characteristics. These are the characteristics that allow clients to accomplish so many valuable elements in the single structure:

Open Investment Universe–Almost any asset that can be held by a trust company can become part of a PPLI policy. With proper structuring even operating businesses can be included.

Simplified Reporting–The assets inside the policy are held in separate accounts for the policyholder, meaning that they are not part of the general assets of the insurance company. But for reporting purposes, the insurance company becomes the beneficial owner of the assets.

Asset Protection–The insurance policy adds another layer of asset protection in the structure. The domicile of the insurance companies also is a help here, as they are located in jurisdictions that have strong asset protection laws, like Bermuda and Barbados.

Low Fees/Commissions–Most often there is a 1% set-up fee. And the ongoing fees are frequently less than 1% of the assets inside the policy. This contrasts sharply to the large first year commissions charged by Universal Life and Whole Life policies.

Now for our examples of how change plays out in the world today. Self-driving cars and the OECD’s CRS are concepts that did not exist a few years ago. To make their way into our everyday world is not an easy task. They both have something to offer, but they must fit into other structures that have existed for longer periods. They are like new pieces of a jigsaw puzzle introduced when the puzzle seems to be complete.

Self-driving cars Encounter Political Roadblocks” by Mike Colias and Tim Higgins of the Wall Street Journal, give us a glimpse into the process of integrating technological change into the world.

“Auto makers and other companies racing to commercialize self-driving car technology are facing pushback from local politicians, complicating their plans to bring real-world testing to more U.S. cities.

In New York City, General Motors Co. has put on hold plans to begin testing in Manhattan because Mayor Bill de Blasio has expressed concerns about the technology’s safety, according to people familiar with the matter. GM said last year it would be the first company to start driverless-car testing in the city, starting in early 2018.

In Chicago, the city council’s transportation-committee chairman has vowed to block self-driving cars from operating in the nation’s third-largest metropolis, citing safety concerns and the potential for displacing taxi drivers and other jobs.

Even in Pittsburgh, a hotbed for autonomous-vehicle research and development, city officials have recently adopted more stringent requirements, demanding that driverless-car developers detail how a vehicle’s safety system works before granting permission to test on public roads.

A fatal crash in March, when an Uber Technologies Inc. self-driving test car stuck and killed a pedestrian in Tempe, Ariz., has fueled concerns over putting such prototypes on public roads, especially in big cities that tend to be more crowded, transportation officials say. Also, many city leaders say they want companies to show that the technology will provide wider social benefits, such as reducing congestion and helping low-income residents get around.

“It’s a lot of local politics that are difficult to navigate,” said Bradley Tusk, founder of Tusk Ventures, which works with startups on regulations and other political issues. “These are hard issues. You’re talking about small spaces that are very congested.

Meanwhile, a Senate bill that aims to establish nationwide regulations for self-driving cars has stalled in Congress. Without federal direction, cities and states are left to act on their own, creating a patchwork of rules and red tape for companies plowing billions into the technology and hoping to eventually turn their testing into profitable ventures.

GM Chief Executive Mary Barra has called self-driving vehicles “the biggest opportunity since the creation of the internet.” GM, Alphabet Inc.’s self-driving car unit Waymo LLC and others are betting these services will create a market for customers wanting to hail a robotic car much like they do an Uber or Lyft Inc. ride. Some analysts estimate that market could eventually be valued at trillions of dollars.

GM and Waymo are among companies that have been testing in a handful of U.S. communities for years and are getting closer to launching services to paying customers. GM plans to introduce a new robot-taxi service next year, likely in San Francisco, where the auto maker has done the bulk of its testing. Waymo said Nov. 13 that it will begin offering rides in self-driving cars to Phoenix-area customers in the coming weeks.

Companies say that in some cities, they are working closely with officials to assuage concerns, but much more work is needed before a wider rollout is possible.”

Barney Thompson of the Financial Times, shares with us “EU National Challenges HMRC Over New Data Sharing Rules.” CRS aims to assist governments in the fair collection of taxes, but are data protection safeguards in place to protect our rights to privacy?

“An EU national is challenging HM Revenue & Customs over new rules that require tax authorities around the world to automatically exchange information on millions of their citizens who live abroad.”

In a complaint to the UK’s data protection regulator, the EU citizen said the common reporting standard — a key measure against tax evasion developed by international experts that is now being gradually introduced by more than 100 countries — made her personal information vulnerable to cyber hacking or an accidental leak.

However, campaigners have defended the measure, saying it was an important tool in the fight against tax avoidance and evasion, notably through offshore financial centers.

The EU citizen who has made the complaint about the common reporting standard — who does not want to be identified — is currently domiciled in Italy but is described as having “a very international background”.

She lived in the UK for several years and was tax resident in Britain, acquiring a unique taxpayer reference and a national insurance number. She also still has a UK bank account with a deposit of £4,000.

Even with this relatively small amount, her bank is required under the common reporting standard to disclose certain information to the HMRC, including the account number, balance, her name, date of birth and tax number.

In turn, HMRC must pass on the information to its counterpart in Italy, which it is due to do in September.

Exchange of information would be automatic

In theory, any UK bank account holder living in another country that abides by the common reporting standard falls under the scope of its rules.

Within the EU, almost 19m people are estimated to live in a different member state to the one in which they were born.

Like the US foreign account tax compliance act, on which it is based, the common reporting standard was designed as a way to counter global tax evasion by making the exchange of information between countries automatic rather than have tax bodies request it if they suspect wrongdoing.

The standard was developed by the Organisation for Economic Cooperation and Development, the Paris-based international body that co-ordinates co-operation between different tax jurisdictions.

Several countries have poor data security

In her complaint against the common reporting standard to the UK Information Commissioner’s Office, the EU citizen said the exchange of information required by the rules will expose her to “a disproportionate risk of data loss and potentially hacking”.

She added: “This risk has crystallised recently in light of incidents in which HMRC has lost data concerning UK taxpayers and recent data breaches concerning UK banks.”

Her complaint cited how HMRC had lost the personal records of 25m taxpayers in 2007, as well as a media report in 2017 outlining how the tax authority’s website was vulnerable to cyber attacks. HMRC subsequently took action to fix the weaknesses.

Among the countries that have signed up to the common reporting standard are several with poor data security records, added the woman’s complaint.

Furthermore, data leaks such as during the TSB online banking failure this year and attempts by cybercriminals to hack the online tax details of British taxpayers illustrated the dangers around the mass exchange of sensitive personal information, it said.

As a result, the common reporting standard infringed the new EU-wide General Data Protection Regulation, which came into force in May, as well as European human rights laws, said the complaint.

Rules risk ‘identity theft on a grand scale’

The Information Commissioner’s Office has the power to impose temporary or permanent limits on the processing of personal data if it decides that GDPR rules are being infringed.

The office said:

“We have received a complaint relating to HMRC and the common reporting standard and will be looking into the details.”

Filippo Noseda, a partner at law firm Mishcon de Reya, who is acting for the EU national, said the data breach risks involved in the standard “could lead to identity theft on a grand scale”.

Mr Noseda acknowledged that rich clients of law firms would appreciate not having their tax details and activities shared between authorities.

But he added:

“The endgame is not to go back to banking secrecy. We need to find a system that is balanced.”

John Christensen, director of the Tax Justice Network, a campaign group, defended the common reporting standard, saying it needed to be broad to deter individuals from using offshore structures to avoid and evade tax.

“The [standard] has given the tax authorities the information they previously did not have access to, which enables them to pinpoint where tax evasion is happening,” he added.

 

“Tax avoidance and evasion are . . . deliberately and purposefully depriving tax authorities of finances.”

 

HMRC declined to discuss the EU citizen’s case but added:

“HMRC shares some personal data with overseas tax authorities to ensure that the right tax is being paid. HMRC only ever shares information when it’s entirely lawful to do so. This includes complying with applicable GDPR requirements.”

 

Advanced Financial Solutions, Inc. uses a stable and well-accepted financial concept, life insurance, to structure the assets of wealthy international families. Our main tool, PPLI, is a versatile and underutilized form of life insurance that gives excellent structuring results. Please join our list of very satisfied clients by contacting us today about your worldwide assets. We are here to bring you the right kind of change that is disruptive in a positive way.

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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PPLI Changes an Asset’s Location

Moving Mount Everest

One goal of Private Placement Life Insurance (#PPLI) is to change an asset’s location. Can PPLI move Mount Everest? Not literally, but it does an excellent job of moving the assets of wealthy international families. Moving these assets where? Into a PPLI policy that gives these assets tax-deferral, asset protection, and passes them to beneficiaries as a tax-free death benefit.

We share with you Part II of Our Journey Together video that introduces PPLI and presents the six principles of Expanded Worldwide Planning (EWP): privacy, asset protection, succession planning, tax planning, compliance simplifier, and trust substitute.

Depending on the aims of the PPLI structuring, different sets of laws must be adhered to. For families that have a connection to the U.S., the IRS rules related to diversification and investor control must be followed. For clients with no connection to the U.S., these rules do not apply, and we must look to the country of the families’ tax domicile and the domicile of the insurance company for guidance.

This allows, in many cases, for PPLI structuring options not available to those families with a connection to the U.S. We have for you below the provisions of Barbados law that pertain to variable insurance. As you can read, they are simple, straightforward, and have few restrictions as to the assets that can be placed in a PPLI policy.

Many of our PPLI policies are written through companies domiciled in Barbados. Gregory J. Dean and Michael A. Heimos wrote a chapter in International Life Insurance, edited by David D. Whelehan, entitled, “A Jurisdictional Survey of the Asset Protection Merits of International Life Insurance and Annuities.” We quote from the section on Barbados.

“Barbados has sophisticated insurance laws rivaling any in the world, and a mature insurance industry, governed by the Insurance Act, 1996 (referred to in this section as the “Act”).  There are detailed provisions addressing generally defined long term business, group life, “industrial life insurance,” etc. The entirely of Barbadian insurance law is present in public legislation.

On August 17, 2001 the Governor-General of Barbados assented to several pieces of legislation that amend Barbados’ laws governing key aspects of banking, insurance and investment in the island. They are: the Companies (Amendment) Act, 2001-30; the International Business (Miscellaneous Provisions) Act, 2001-29; the Insurance (Amendment) Act, 2001-25; and the Exempt Insurance (Amendment) Act, 2001-27.

The acts allow for structures that are often seen as beneficial, if not necessary, for institutions in the offshore mutual funds, banking and trusts, captive insurance and commercial insurance industries to operate, in Barbados and elsewhere. As pointed out below, there also are aspects of the amendments regarding insurance that apply to the interests of local citizens and residents as well. The new acts are, largely, quite praiseworthy.”

Movable assets can be legally contested, especially in matrimonial disputes. We give you an article later on that is focused on just such a dispute.

Here is the section on Variable Insurance Business of the Barbados insurance code.

CHAPTER 310 INSURANCE

An Act to revise the law regulating the carrying on of insurance business in Barbados in order to strengthen the protection given to policyholders; to increase the capital and solvency requirements of insurance companies; to expand the existing regulatory framework to include the regulating of all insurance intermediaries; and to give effect to matters related thereto.

 

PROVISIONS RELATING TO VARIABLE INSURANCE BUSINESS

(5) The Supervisor may attach such further conditions to the issue of approval under subsection (1) as are relevant to the nature and class of the variable insurance business that the insurer intends to carry on including

(a) requiring the insurer to disclose to any applicant for a policy any one or more of the following:

(i) a statement of the investment policy of any separate account maintained in respect of such variable insurance policy including a description of the investment objectives intended for the separate account and the principal types of investments intended to be made, and any restrictions or limitations on the manner in which the operations of the separate account are intended to be conducted;

(ii) any restrictions or limitations on the manner in which the operations of such variable insurance policy are intended to be conducted;

(iii) a statement of the charges and expenses in respect of such variable insurance policy;

(iv) a summary of the method to be used in valuing assets in respect of which benefits under such variable insurance policy are to be determined; and

(v) illustrations of benefits payable under the variable insurance contract;

(b) requiring that any material contract between an insurer and suppliers of consulting, investment, administrative, sales, marketing, custodial or other services with respect to variable life insurance operations shall be in writing and provide that the supplier of such services shall furnish the Supervisor with any information or reports in connection with the services which the Supervisor may request in order to ascertain whether the variable life insurance operations of the insurer are being conducted in a manner consistent with this Act, and any other applicable law or regulation;

(c) requiring the insurer to furnish, in such manner and at such times or intervals as may be prescribed, such information relating to the value of benefits under the policies as may be prescribed, whether by sending notices to the policy-holders or depositing statements with the Supervisor;

(d) requiring that the variable insurance policy be in a specific form or contain such mandatory provisions as may be prescribed in any regulations;

(e) requiring that the insurer maintain reserves in addition to any reserves which the insurer is required to maintain under this Act;

(f) restricting the descriptions of property or indices of value of property by reference to which benefits under the policy will be determined in accordance with the regulations prescribed for such purpose; or

(g) regulating the manner in which and frequency with which property of any description is to be valued, for the purpose of determining the benefits, and the times at which reference is to be made for that purpose to any index of value of property in accordance with the regulations prescribed for such purpose.”

The disputed matrimonial asset that we mentioned earlier is a yacht, Dubai Court Overrules English Possession Order for Superyacht, and comes to us from the Society of Trust & Estate Practitioners (STEP) Industry News publication.

“Tatiana Akhmedova’s English court order against her Russian ex-husband Farkhad Akhmedov, vesting her with possession of his GBP350 million yacht, has been rejected by a Shari’a court in Dubai, where the vessel is currently detained.

The yacht, the MV Luna, is part of the GBP453 million financial remedy awarded granted to Mrs Akhmedova on their divorce in 2015. Ever since, her former husband, an oil tycoon, has been trying to put his assets beyond her reach. According to her lawyers, Withers, he hid assets in a Bermuda trust with the intention of evading his legal obligations to his wife, and launched a counter-claim that they had already divorced in Russia. This claim was only recently dismissed in a Russian court.

In December 2017, Haddon-Cave J in the England and Wales High Court set aside Mr Akhmedov’s dispositions of assets and money into the trust, in an unusual example of a court judgment that pierced the corporate veil. His bank accounts and other assets were frozen under worldwide freezing orders obtained in England, Liechtenstein and the Isle of Man. Haddon-Cave ordered him, and a Liechtenstein Anstalt that he controlled, to vest the yacht in his wife’s name to be sold on her behalf (Akhmedova v Akhmedov, 2018 EWFC 23 Fam).

By this time, Mr Akhmedova had sailed the Luna from its usual home in Turkey to Dubai, hoping to find some recourse through the Dubai legal system. Mrs Akhmedova thus applied to the Dubai International Finance Centre (DIFC) court for a freezing order against both Mr Akhmedov and the Liechtenstein Anstalt, in the hope that the DIFC would issue a court order recognised by the Dubai courts themselves. This order was granted, and later supported by the DIFC Court of Appeal, and Mrs Akhmedova applied to the Dubai courts for a precautionary attachment of Luna. This too was granted, enforcing the boat’s detention in Dubai.

However, Mr Akhmedov then filed a claim in Dubai that his dispute with his ex-wife was a matrimonial rather than one of commercial debt, and so should have been determined by the Dubai courts in accordance with Shari’a law.

In the latest development, the Dubai’s Court of First Instance has dismissed Mrs Akhmedova’s application for possession, and ordered her to pay expenses and legal fees. The vessel, meanwhile, remains in dock at Prince Rashid Harbour in Dubai.

A spokesman for Mrs Akhmedova said the significance and the substance of the Dubai court’s ruling are not yet clear, as all that has been handed down at this stage is the decision. An appeal will be considered once the full judgment together with reasons is available, the spokesperson said.”

PPLI structuring allows us to move an asset, not physically, but into a structure that allows all of the six principles of Expanded Worldwide Planning (EWP)to function. This gives wealthy international families enhanced privacy and tax benefits, and makes them fully compliant with the world’s tax authorities.

We welcome your thoughts and comments on how we can make this happen for you. You can share them at the bottom of this article or you can Contact Us for more information.

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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How to Climb the Mountain of Happiness

PPLI Provides Steps Up the Mountain

Private Placement Life Insurance (PPLI) offers a structure that produces tax efficiency, enhanced privacy, and asset protection. In our opening quote, it can be likened to stepping up the mountain. PPLI is not a goal, but a financial structure that gives wealthy international families key elements of financial happiness.

“PPLI functions more like a trust, than a financial product.”

It is appropriate that this quote is from Confucius. For those unfamiliar with Confucius we will have a biographical sketch later on. What is also connected is Part I of a video that re-creates a presentation that I gave at The 4th FOA Family Think Tank Forum in Shanghai, China, which was held on the campus of Fu Dan University.  I was invited to speak by Ann Lee of the Wintel Law Firm in Shanghai.

The presentation is an introduction to Private Placement Life Insurance (PPLI), and the international tax planning concept of Expanded Worldwide Planning (EWP). The two-day conference was attended by attorneys, accountants, financial planners, insurance brokers, and other professionals who work with high net worth clients in China and the Far East.

First, we have a quote about PPLI from Senior Consultant, The Voice of the Investment Management Consultant.

“Private Placement Life Insurance (PPLI) is much more than an insurance policy. PPLI represents one of the most powerful vehicles available to the high net worth investor in the marketplace today.

PPLI enhances both wealth creation and wealth preservation. Wealth creation is the result of the tax-free growth of the assets in the insurance contract. Wealth preservation is a result of the death benefit paid from the insurance contract.”

Much is written about tax transparency. Many of those who champion tax transparency say that it will result in a system that is more equitable and fair. Will it result in greater happiness? The conclusion of this New York Times article, Happy ‘National Jealousy Day’! Finland Bares Its Citizens’ Taxes offers a different perspective.

“Shortly after 6 a.m. on Thursday, people began lining up outside the central office of the Finnish tax administration. It was chilly and dark, but they claimed their places, eager to be the first to tap into a mother lode of data.

Pamplona can boast of the running of the bulls, Rio de Janeiro has Carnival, but Helsinki is alone in observing “National Jealousy Day,” when every Finnish citizen’s taxable income is made public at 8 a.m. sharp.

The annual Nov. 1 data dump is the starting gun for a countrywide game of who’s up and who’s down. Which tousled tech entrepreneur has sold his company? Which Instagram celebrity is, in fact, broke? Which retired executive is weaseling out of his tax liabilities?

Esa Saarinen, a professor of philosophy at Aalto University in Helsinki, described it as “a fairly positive form of gossip.”

Finland is unusual, even among the Nordic states, in turning its release of personal tax data — to comply with government transparency laws — into a public ritual of comparison. Though some complain that the tradition is an invasion of privacy, most say it has helped the country resist the trend toward growing inequality that has crept across of the rest of Europe.

“We’re looking at the gap between normal people and those rich, rich people — is it getting too wide?” said Tuomo Pietilainen, an investigative reporter at Helsingin Sanomat, the country’s largest daily newspaper. …

Roman Schatz, 58, a German-born author, rolled his eyes, a little, at Finland’s annual celebration of its own honesty. “It’s a psychological exercise,” he said. “It creates an illusion of transparency so we all feel good about ourselves: ‘The Americans could never do it. The Germans could never do it. We are honest guys, good guys.’ It’s sort of a Lutheran purgatory.” …

Economists in the United States have shown great interest in salary disclosure in recent years, in part as a way of reducing gender or racial disparities in pay.

Transparency may or may not reduce inequality, but does tend to make people less satisfied, several concluded. A study of faculty members at the University of California, where pay was made accessible online in 2008, found that lower-earning workers, after learning how their pay stacked up, were less happy in their job and more likely to look for a new one.

A study of Norway, which made its tax data easily accessible to anonymous online searches in 2001, reached a similar conclusion: When people could easily learn the incomes of co-workers and neighbors, self-reported happiness began to track more closely with income, with low earners reporting lower happiness. In 2014, Norway banned anonymous searches, and the number of searches dropped dramatically.

“More information may not be something which improves overall well-being,” said Alexandre Mas, one of the authors of the University of California report. …

One of the great sports of National Jealousy Day is to publicly shame tax dodgers.

In 2015, Mr. Pietilainen found that executives from several of Finland’s largest firms had relocated to Portugal so that they could receive their pensions tax free. His reporting caused such a stir that the Finnish Parliament terminated its tax agreement with Portugal, negotiating a new one that closed the loophole.”

Now a little about the extraordinary life of Confucius from the Simple English Wikipedia. We found this section on Confucius suited our article better than the longer Wikipedia article.

“Confucius (born 551 BC, died 478 BC) was an important Chinese educator and philosopher. His original name was Kong Qiu or Zhong Ni. As a child, he was eager to learn about everything, and was very interested in rituals. Once he grew up, he worked as a state official who handled farms and cattle. Then he became a teacher.

Confucius lived in a time when many states were fighting wars in China. This period was called the Spring and Autumn period of the Zhou Dynasty. Confucius did not like this and wanted to bring order back to society.

Like Socrates, Confucius sometimes did not answer philosophical questions himself. Instead he wanted people to think hard about problems and to learn from others, especially from history. Confucius also thought that people should get power because they were good and skilled, and not just because they came from powerful families.

Confucius wanted people to think about other people more than about money or what they owned. However he also felt that there should be strong rules in society and that people needed to obey them. Confucius thought that there were five relationships people could have, and that they all had their own rules. Two people could be

  • Prince and Subject
  • Father and Son
  • Husband and Wife
  • Elder and Child
  • or Friends

These were traditional relationships called the ‘five prototypes’. Confucius said that in all these relationships, both people must obey rules. For example, a subject must obey a prince, but also a prince must listen to a subject and must rule him well and fairly.

Confucius said that people should only do things to other people if they would be okay with other people doing those things to themselves. This is sometimes called the Golden Rule and was also taught by Jesus Christ.

His students wrote down small stories about him, and things that he said. These were put together to make a book called “The Analects.”

At Advanced Financial Solutions, Inc. the mountain that we climb is the creation of unique asset structures for wealthy international families using PPLI. We welcome you to climb this mountain with us, and achieve a structure that can give you financial happiness. Please contact us today.

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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Never Underestimate the Power of Persistence

PPLI Delivers Persistence

At Advanced Financial Solutions, Inc. in our quest to solve difficult client issues using Private Placement Life Insurance (PPLI) structuring, we have found that being persistent is a great benefit. Since we have clients throughout the world in diverse financial environments, our problem solving expertise is key to a successful outcome.

By way of analogy we give you an example from science. Have you ever wondered how water can travel from the roots of a tree to the top? Consider the height of coastal redwood trees in California, reaching up to 379 feet (115.5 m) in height (without the roots). Part of the solution is a persistent chain of water molecules that travel skyward to the top of these giant trees.

First let us give you some examples of being persistent in our PPLI structuring  for our clients.

Unique Solution #1

A Chinese family came to us for succession planning for offshore companies owned by the family. They wished to pass these offshore companies located in various parts of the world to their son, who is a green card holder residing in the U.S. Besides transferring the companies at the death of the wealth owner via a properly structured PPLI policy, the son wished to take the profits from the companies and invest them in real estate projects outside the U.S. We created a PPLI structure for the family that accomplished all of these aims. The PPLI structure also gave them tax-deferral on all the future revenue from the companies.

Unique Solution #2

An Israeli client who resides in Italy has a company where all the revenue is generated in Italy. He is also a U.S. green card holder, but spends very little time in the U.S. He had a Nevada company that did the processing of his customers orders which came from customers worldwide. The client wished to re-structure to lessen his U.S. tax burden which we accomplished for him using a 953(d) offshore PPLI policy.

Unique Solution #3

A young entrepreneur with worldwide holdings in sports, natural resources, gaming, and content management wishes us to check his compliance with FATCA and CRS. He is a U.S. green card holder as well as a UK resident, and citizen of an African country. He had created a dozen companies with excellent potential. We brought him into compliance with tax authorities worldwide with a PPLI structure. We gave his revenues a boost, because in the PPLI structure all the profits become tax-deferred. We protected his family with the low-cost death benefit of the PPLI policy.

We are grateful to Mark Vitosh of Iowa State University for his article in Scientific American which excellently explains how water can reach the top of the tallest trees in the world.

“There are many different processes occurring within trees that allow them to grow. One is the movement of water and nutrients from the roots to the leaves in the canopy, or upper branches. Water is the building block of living cells; it is a nourishing and cleansing agent, and a transport medium that allows for the distribution of nutrients and carbon compounds (food) throughout the tree. The coastal redwood, or Sequoia sempervirens, can reach heights over 300 feet (or approximately 91 meters), which is a great distance for water, nutrients and carbon compounds to move. To understand how water moves through a tree, we must first describe the path it takes.

Water and mineral nutrients–the so-called sap flow–travel from the roots to the top of the tree within a layer of wood found under the bark. This sapwood consists of conductive tissue called xylem (made up of small pipe-like cells). There are major differences between hardwoods (oak, ash, maple) and conifers (redwood, pine, spruce, fir) in the structure of xylem. In hardwoods, water moves throughout the tree in xylem cells called vessels, which are lined up end-to-end and have large openings in their ends. In contrast, the xylem of conifers consists of enclosed cells called tracheids. These cells are also lined up end-to-end, but part of their adjacent walls have holes that act as a sieve. For this reason, water moves faster through the larger vessels of hardwoods than through the smaller tracheids of conifers.

Both vessel and tracheid cells allow water and nutrients to move up the tree, whereas specialized ray cells pass water and food horizontally across the xylem. All xylem cells that carry water are dead, so they act as a pipe. Xylem tissue is found in all growth rings (wood) of the tree. Not all tree species have the same number of annual growth rings that are active in the movement of water and mineral nutrients. For example, conifer trees and some hardwood species may have several growth rings that are active conductors, whereas in other species, such as the oaks, only the current years’ growth ring is functional.

This unique situation comes about because the xylem tissue in oaks has very large vessels; they can carry a lot of water quickly, but can also be easily disrupted by freezing and air pockets. It’s amazing that a 200 year-old living oak tree can survive and grow using only the support of a very thin layer of tissue beneath the bark. The rest of the 199 growth rings are mostly inactive. In a coastal redwood, though, the xylem is mostly made up of tracheids that move water slowly to the top of the tree. Now that we have described the pathway that water follows through the xylem, we can talk about the mechanism involved. Water has two characteristics that make it a unique liquid. First, water adheres to many surfaces with which it comes into contact. Second, water molecules can also cohere, or hold on to each other. These two features allow water to be pulled like a rubber band up small capillary tubes like xylem cells.

Water has energy to do work: it carries chemicals in solution, adheres to surfaces and makes living cells turgid by filling them. This energy is called potential energy. At rest, pure water has 100 percent of its potential energy, which is by convention set at zero. As water begins to move, its potential energy for additional work is reduced and becomes negative. Water moves from areas with the least negative potential energy to areas where the potential energy is more negative. For example, the most negative water potential in a tree is usually found at the leaf-atmosphere interface; the least negative water potential is found in the soil, where water moves into the roots of the tree. As you move up the tree the water potential becomes more negative, and these differences create a pull or tension that brings the water up the tree.

A key factor that helps create the pull of water up the tree is the loss of water out of the leaves through a process called transpiration. During transpiration, water vapor is released from the leaves through small pores or openings called stomates. Stomates are present in the leaf so that carbon dioxide–which the leaves use to make food by way of photosynthesis–can enter. The loss of water during transpiration creates more negative water potential in the leaf, which in turn pulls more water up the tree. So in general, the water loss from the leaf is the engine that pulls water and nutrients up the tree.

How can water withstand the tensions needed to be pulled up a tree? The trick is, as we mentioned earlier, the ability of water molecules to stick to each other and to other surfaces so strongly. Given that strength, the loss of water at the top of tree through transpiration provides the driving force to pull water and mineral nutrients up the trunks of trees as mighty as the redwoods.”

In some ways we are taught to see scientific processes like this as an inevitable result of something–something ordinary. But an inevitable result of what? That is the point. From another perspective, it is the inevitable result of something miraculous. Let us call it the miraculous persistence of nature.

Advanced Financial Solutions, Inc. enjoys being persistent in finding PPLI structuring solutions for our worldwide client base. Please contact us for a unique solution to your asset structuring needs.

We invite you to put our persistency to the test!

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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‘Home Is Where The Heart Is’

PPLI Brings You Home

Wealthy international families can create a tax compliant and enhanced privacy Home for their assets using Private Placement Life Insurance (PPLI). The concept of Home is a powerful one for all of us.

At this point in the digital age, you could consider a smartphone to be a type of Home for information. A smart phone can organize and personalize different elements of our lives to bring them to a place that gives us a sense of security much like a physical Home does.

We all like to arrange our contacts, notifications, sounds, and other features to suit our personal taste. The key word here is personal.

“PPLI can do the same for the assets of wealthy international families that are spread throughout the world.”

Our featured news article uses personal in another sense. We are widening our concept of Home to include ‘Home Is Where The Heart Is.’ For Kris Goldsmith what spurred him into action was misinformation that was being spread over Facebook about U.S. Veterans. This emotional element of Home can be a strong force in our lives.

“PPLI is a welcomed unifying element for the assets of wealthy international families.”

Let us review all that can be included in the assets of wealthy international families by visiting the Wikipedia page on Assets:

“In financial accounting, an asset is any resource owned by the business. Anything tangible or intangible that can be owned or controlled to produce value and that is held by a company to produce positive economic value is an asset. Simply stated, assets represent the value of ownership that can be converted into cash (although cash itself is also considered an asset). The balance sheet of a firm records the monetary value of the assets owned by that firm. It covers money and other valuables belonging to an individual or to a business.

One can classify assets into two major asset classes: tangible assets and intangible assets. Tangible assets contain various subclasses, including current assets and fixed assets. Current assets include inventory, while fixed assets include such items as buildings and equipment.

Intangible assets are non-physical resources and rights that have a value to the firm because they give the firm some kind of advantage in the marketplace. Examples of intangible assets include goodwill, copyrights, trademarks, patents and computer programs, and financial assets, including such items as accounts receivable, bonds and stocks.”

“With proper structuring most all the assets mentioned above can be included in a PPLI policy.”

Let us return to ‘Home Is Where The Heart Is,’ by following the trail of Kris Goldsmith in his search for disinformation as it related to the Vietnam Veterans of America. Our source is The Wall Street Journal article, Army Veteran Wages War on Social-Media Disinformation,by Ben Kesling and Dustin Volz. If you change the subject matter, Mr. Goldsmith’s search could be ours.

We all have topics that compel us to act in one way or another, if what we see on Facebook or in the media strike the right emotional cord for us. This emotional cord is ‘Home Is Where The Heart Is.’

Kris Goldsmith’s campaign to get Facebook Inc. to close fake accounts targeting U.S. veterans started with a simple search.

He was seeking last year to gauge the popularity of the Facebook page for his employer, Vietnam Veterans of America. The first listing was an impostor account called “Vietnam Vets of America” that had stolen his group’s logo and had more than twice as many followers.

Mr. Goldsmith, a 33-year-old Army veteran, sent Facebook what he thought was a straightforward request to take down the bogus page. At first, Facebook told him to try to work it out with the authors of the fake page, whom he was never able to track down. Then, after two months, Facebook deleted it.

The experience launched him on a hunt for other suspicious Facebook pages that target military personnel and veterans by using patriotic messages and fomenting political divisions. It has become a full-time job.

Working from offices, coffee shops, and his apartment, he has cataloged and flagged to Facebook about 100 questionable pages that have millions of followers. He sits for hours and clicks links, keeping extensive notes and compiling elaborate spreadsheets on how pages are interconnected, and tracing them back, when possible, to roots in Russia, Eastern Europe or the Middle East.

“The more I look, the more patterns I see,” he said.

Facebook’s response to his work has been tepid, he said. Company officials initially refused to talk with him, so he used a personal contact at Facebook to share his findings. Lately, the company has been more active.

Facebook didn’t respond directly to a list of questions about Mr. Goldsmith’s research, but a spokesman said the company had 14,000 people working on security and safety—double the amount last year—and a goal of expanding that team to 20,000 by next year.

In a statement, the spokesman said the company relied on “a combination of automated detection systems, as well as reports from the community, to help identify suspicious activity on the platform and ensure compliance with our policies.”

About two dozen of the pages Mr. Goldsmith flagged, with a combined following of some 20 million, have been deleted, often coinciding with Facebook’s purges of Russian- and Iranian-linked disinformation pages—including a separate crackdown by the company last week on domestic actors.

The determination and persistence of Mr. Goldsmith reminds us of how at Advanced Financial Solutions, Inc., we pursue all available avenues to successfully place assets into a properly structured PPLI policy. The results include both a fully compliant structure, and one that also produces enhanced privacy for the family, as for reporting purposes, the owner of the assets inside the PPLI policy becomes the insurance company.

You have an open invitation to find ‘Home Is Where The Heart Is’ with us. We welcome your comments and questions on how to find the right Home for your assets with Advanced Financial Solutions, Inc. by using PPLI. Please contact us today for an initial consultation at no charge.

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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Tortoises Have Strong Shells

PPLI’s Tax Shield Is Even Stronger

The tax savings element of Private Placement Life Insurance (PPLI) is impressive. We invite you to reflect on your own attitudes toward tax savings by offering two articles on tax that appeared this week in the media.

The tax codes of most countries are a maze of regulations that require professional assistance to extract the most salient tax saving points.  PPLI is at the forefront of structuring techniques that take advantage of maximum tax savings, and at the same time, full compliance with the world’s tax authorities.

How does PPLI become the “leader of the pack” when it comes to tax savings?

This is summed up mostly in two words: Life Insurance. The life insurance laws in most countries are very tax friendly–one receives tax deferral for the investment component of a life insurance contract, and at the death of the insured person(s), the death benefit is passed tax-free to the beneficiary.

With PPLI you couple the life insurance component with an open architecture platform. What does this allow? This allows assets to be located almost anywhere in the world, and to have asset managers located in most jurisdictions in the world. PPLI structuring is a very powerful tool for wealthy international families, and is difficult to achieve with entity planning only–creating trusts, foundations, corporations, etc.

Now for our news articles that reveal interesting attitudes towards wealth and taxes. The first is from Bloomberg, Top 3% of U.S. Taxpayers Paid Majority of Income Taxes in 2016.

“Individual income taxes are the federal government’s single biggest revenue source. In fiscal year 2018, which ended Sept. 30, the individual income tax is expected to bring in roughly $1.7 trillion, or about half of all federal revenues, according to the Congressional Budget Office.”

Bloomberg looked into the 2016 individual returns data in detail for some additional insights illustrated in the chart below:

  • The top 1 percent paid a greater share of individual income taxes (37.3 percent) than the bottom 90 percent combined (30.5 percent).
  • The top 50 percent of all taxpayers paid 97 percent of total individual income taxes.”

 

 

Our next article is from The New York Times, How Jared Kushner Avoided Paying Taxes.

“Jared Kushner has a net worth of almost $324 million, and his company has been profitable. But Mr. Kushner, who is President Trump’s son-in-law and senior adviser, appears to have paid almost  no federal income taxes for several years running, according to documents reviewed by The New York Times.”

The article goes on to detail Mr. Kushner’s real estate investments, and how they result in a zero tax bill.

Ironic Fact

When one combines the salient points of these two articles, it is ironic to reflect that the wealthy are the ones who both pay the most taxes, and seek to save the most taxes. When anyone prepares their income tax return, wealthy or poor, do they seek to pay the most tax or the least? Many commentators criticize wealthy individuals and corporations for not paying their fair share of taxes. But what is this fair share? Who decides what a fair share is?

Thankfully, we don’t have to answer this question. Our goal is to maximize your investment gains through strategies that minimize your worldwide tax burden. Please send us your tax concerns and questions, so we can structure a plan that gives you all the tax savings elements of PPLI. You can share your experience and inquiries at the bottom of the page. Thank you.

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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Educational Opposition

PPLI Enhanced Value

Private Placement Life Insurance (PPLI) greatly enhances the value of the assets of wealthy international families. This is accomplished through the six elements of Expanded Worldwide Planning (EWP) which we will present you.

First, let us explore enhanced value. One way to understand something is through understanding what is the opposite of a concept. So what is the opposite of what we call, PPLI Enhanced Value? A candidate might be a fraudulent financial scheme. One has come to light this week in a New York Times article, Where In The World Is Denmark’s $2 Billion? by Paul Caron.

From the Wikipedia page, International tax planning, we give you the six elements of EWP. As you read them, reflect on how they all assist in creating PPLI Enhanced Value.

Privacy

EWP gives privacy and compliance with tax laws. It also enhances protection from data breaches and strengthens family security. EWP allows for a tax compliant system that still respects the basic rights of privacy. EWP addresses the concerns of law firms and international planners about some aspects of CRS related to their clients’ privacy. EWP assists with the privacy and welfare of families by protecting their financial records and keeping them in compliance with tax regulations.

Asset protection

EWP protects assets with segregated account legislation by using the benefits of life insurance. This structure uses asset protection laws in the jurisdictions of residence to shield these assets from creditors’ claims. A trust with its own asset protection provisions can still receive additional protection with the policy.

Succession planning

EWP includes transfers of assets without forced heirship rules directly to beneficiaries using a controlled and orderly plan. This element of EWP provides a wealth holder a method to enact an estate plan according to his/her wishes without complying with forced heirship rules in the home country. This plan must be coordinated with all the aspects of a properly structured PPLI policy together with other elements of a wealth owner’s financial and legal planning.

Tax shield

EWP adds tax deferral, income, estate tax benefits and dynasty tax planning opportunities. Assets held in a life insurance contract are considered tax-deferred in most jurisdictions throughout the world. Likewise, PPLI policies that are properly constructed shield the assets from all taxes. In most cases, upon the death of the insured, benefits are paid as a tax free death benefit.

Compliance simplifier

EWP adds ease of reporting to tax authorities and administration of assets, commercial substance to structures. In addition, the insurance company is considered the beneficial owner of the assets. This approach greatly simplifies reporting obligations to tax authorizes because assets in the policy are held in segregated accounts and can be spread over multiple jurisdictions worldwide.

Trust substitute

EWP creates a viable structure under specific insurance regulations for civil law jurisdictions. It also creates a new role for commercial trust companies. In most civil law jurisdictions, trusts are poorly acknowledged and trust law is not well developed.  As a result, companies with foreign trusts in these civil law jurisdictions, face obstacles.

Now some excerpts from Paul Caron’s article describing what the Danish authorities call one of the greatest financial crimes in the country’s history. Denmark was defrauded $2 billion, which is the equivalent of a $110 billion dollar loss in the far larger U.S. economy.

“The country had fallen victim to a dubious financial maneuver at the intersection of the tax system and capital markets, a dizzyingly complex transaction known as a “cum-ex” trade.

The trade is focused on one of the dullest, most overlooked acts in any financial system — the request for refunds on taxes withheld on dividends. Under Danish law, the government automatically collects taxes on dividends paid out by companies to their shareholders. If the shareholders live in the United States, they are eligible for a refund on some or all of those taxes.

A tiny department in SKAT (the Danish IRS), run by one man, approved thousands of applications for refunds. Most of the applications were filed by self-directed pension plans in the United States, a type of retirement account for individuals.

But experts and lawyers familiar with the scheme say those people were fronts for cum-ex trades. Deploying a kind of financial sleight of hand, the trades made it appear as if the pension plans had purchased shares of Danish companies and paid taxes on the dividends. Neither was true.

To the Danes, it was a fraud, one executed and conceived by Sanjay Shah, a 48-year-old, London-born financier. With an assist from employees, he found the Americans, helped facilitate the applications and ended up with much of the money.

Mr. Shah denies any wrongdoing and through a publicist says he merely took advantage of a loophole. He now lives in Dubai, where he owns a $1.3 million yacht and a 10,000-square-foot villa with access to the beach. He has become Denmark’s national villain.

“You have this guy, living off fraud, it’s infuriating,” said Joachim B. Olsen, a member of the Danish Parliament and chairman of its Finance Committee. “The expectation of the Danish people is that we will go after him, no matter the cost.”

How is PPLI Enhanced Value the opposite of this deceitful fraud scheme? 

At the heart of PPLI structuring is a life insurance policy. A financial instrument common throughout the world, and familiar to most people. PPLI uses this common financial instrument to achieve the six elements of EWP, and this is done with full reporting and compliance throughout the world. This is achieved by respecting the laws and regulations of all jurisdictions involved in the transaction.

PPLI Enhanced Value achieves outstanding benefits by respecting the law and not abusing it as in the Danish fraud scheme.

Please let us know how we can give you PPLI Enhanced Value for your assets, and make the six elements of EWP work for you. We welcome your questions and comments. You can write you inquires at the bottom of this page or you can contact me directly.

 

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by Michael Malloy, CLU, TEP, @ Advanced Financial Solutions, Inc

 

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